The FINANCIAL — Georgian revenue administration in both the tax and customs spheres is now very modern with a strong client service approach, ample infrastructure, innovative thinking, effective use of technology and good IT infrastructure, and a young, motivated and focused staff, claims Deloitte.
The FINANCIAL — Georgian revenue administration in both the tax and customs spheres is now very modern with a strong client service approach, ample infrastructure, innovative thinking, effective use of technology and good IT infrastructure, and a young, motivated and focused staff, claims Deloitte.
“The only backlog is that there is a practice of making frequent changes to the Tax Code and tax regulations, sometimes several times a year. While the main intention of such changes is to clarify the law, this may be difficult for taxpayers to understand their obligations,” John Robinson, Audit partner at Deloitte CIS told The FINANCIAL in an exclusive interview.
Mr. Robinson, who is the resident Partner in Georgia, supported by a local Tax Director, says that corruption has been eliminated and the country has made great progress in tax administration. Lately a strong emphasis has been put on the development of e-services.
“Now the relations of a taxpayer and tax authority are mainly e-based, through an electronic portal. This has resulted in a very high level of electronic filing and reduced taxpayer compliance costs as well as administration costs for the Revenue Service of the Ministry of Finance of Georgia. Many services at the Revenue Service are free. A number of services have become fee-based, often with the fees related to speed of service or personalized assistance,” said Robinson.
Deloitte opened its office in Georgia in 2001. The Georgian practice is part of a wider CIS practice. Across the whole region the firm has 98 partners and employs approximately 2,500, and of those around 70 are resident in Georgia.
John Robinson is originally from the UK, but has spent much of his professional life after qualifying as an accountant outside of the UK. He initially spent some time in the Middle East, before spending approximately sixteen years in Central Europe mainly working in Poland, also spending time working in most of the Central European countries. Robinson spent two years in the US and most recently spent almost two years in Nigeria.
“I have only recently arrived in Georgia, and after just a few months have started to get a feel for the people, place and the business environment and its challenges,” he continued. “Compared to other places that I have worked in, audit requirements in Georgia are a little different, as it is primarily only required for the banks and public interest entities and for those entities that require audit as a result of requirements imposed on them by providers of loans and other related financing arrangements. The market therefore is quite small with many companies, even some large ones, not in need of these services. Whilst the services of the auditors are appreciated by the clients we have, as the regulations for audit do not touch many smaller and medium sized enterprises the understanding of what an audit actually is, and the added benefits that can be derived from this service are not always well understood in the marketplace.”
Q. Please could you name the biggest sectors and companies which you serve?
A. As you would imagine, because of the fact that banks and public interest entities (PIEs) are the ones that actually require audits, these make up a reasonable proportion of the work we do in audit. We do also have significant clients in the retail, real estate and manufacturing sectors. Within the tax department we have an impressive list of clients in all sectors providing them with a full range of taxation services. There is an increasing appetite though for additional consulting projects in the market which we are looking at carefully in collaboration with our other CIS colleagues. At the moment we use combined CIS and Georgian teams in order to bring the best of Deloitte to our clients.
We have some senior members of staff from our US firm resident in Georgia working on two large USAID projects with a number of local experts. The two projects we have are a USAID four-year Economic Prosperity Initiative (EPI) which is designed to improve enterprise, industry, and country-level competitiveness in Georgia. The project serves as a catalyst to spur investments, increase employment, productivity and access to local finance in agriculture and high-export manufacturing and service sectors. The second is a three year USAID Hydropower Investment Promotion Project (HIPP) that supports market-based initiatives to stimulate and secure international investments into Georgia’s small and medium-sized hydroelectric power market.
“Integrity and an overall desire to “do the right thing” goes a long way in business as well as the application of common sense.”
Q. In your opinion what are companies’ expectations of their auditors?
A. Many times the companies are looking to get efficient audits and to meet the deadlines set by the various stakeholders of the businesses. The added benefit of having a fresh pair of eyes look at certain aspects to the business though is invaluable. Whilst there is no doubt a benefit to the audit process, it does inevitably lead to some disruption. Logistically just having space for our teams can be challenging, but more importantly the client’s staff still have their day-to-day work to complete as well as to answering our enquiries. We need to be respectful of this in the way in which we approach the work and to plan as much as possible to minimize any disruption so that this indeed can be as efficient and effective as possible.
Q. Each firm has its own standards and guidelines that a client should meet. What circumstances should clients satisfy to be audited by Deloitte?
A. Deloitte as with all the other Big Four firms has a very robust system of client and engagement acceptance. Quite a lot of time and effort goes into background checks, conflict of interest checks and other such matters. We strive to work with clients that share our own high standards and values. This is not necessarily only size related, however from a practical perspective as our cost structures are higher because of the investments that we make in how we operate as a business and the investment we make in our people and tools we are often more expensive. We do not apologize for this however as we want to be measured by value added rather than simply the cost of the services.
Q. Due to the high expenses many SMEs cannot afford the cost of being audited. Do you serve SMEs in Georgia and what are your offers for them? In general do you think that audit is necessary for SMEs?
A. Many of the SME companies do not require audits by law and therefore the cost does not really factor unless they have specific circumstances that require them to be audited. My own opinion however is that the market would benefit from more entities being subjected to audit procedures. The quality of financial information will be enhanced and the decision-making will improve as the underlying data will often be more reliable. It also gives these businesses an insight from a group of professionals that see in the course of any time period a lot of different issues. Some of these are recurring issues and some are specific. As we deal with such issues on a daily basis we can more easily bring cost-effective solutions to clients.
Q. You are auditing international firms in Georgia, what are the major concerns and obstacles for foreign businesses in Georgia?
A. The foreign businesses we deal with are generally less concerned with how things work in Georgia compared to other more challenging places. Bureaucracy is not something we hear as a major concern of the international clients that we have.
Q. Please tell us the advantages of having an internal audit department within a company. In your opinion is the service becoming popular in Georgian companies?
A. Internal audit is a valuable function provided that its mandate is clear and its reporting lines are well established. The establishment of an internal audit plan for any given period needs to be clear as this is not the same scope as for external audit. There really isn’t a one-size-fits-all model. As clients get more sophisticated these will certainly become more and more visible in companies, however there is some way to go before I would say that it is “becoming popular” in Georgian companies.
Q. Please name the most important recent changes to the tax system of Georgia?
A. Attractiveness of the Georgian tax system has been boosted by the following tax administration reform initiatives: Rationalizing the number of taxes; Restructuring the headquarters and the operational units of the Georgian Revenue Service; Strengthening client orientation with modernized public offices and new services such as the Personal Tax Advisor service and e-services; Compliance initiatives such as a new Alternative Audit option for taxpayers and requiring cash-based businesses to use modern cash registers with real time reporting to the Revenue Service; A new mediation process that aims to avoid tax audit disputes and reduce the likelihood that these will escalate to formal disputes.
Q. How does the firm support the development of its employees’ careers?
A. We are ultimately a “people business” – our people deal with our clients’ people. Our people are our main asset as a professional services firm.
We have an enormous amount of interest shown in our firm both globally and locally. And we are in a position where we can be selective and bring people in who are high-quality, both in terms of what they have achieved academically and intellectually.
All client-facing professionals are required to study for internationally and locally recognized qualifications depending upon their field of expertise. This is supported by the firm in terms of time off for study as well as of course financial support. Our people are updated on new and upcoming changes through ongoing training programmes. For our people on the job training, coaching by more senior employees and feedback from the engagement work are as important as any formal training programmes and we put significant efforts into these in order to develop the best professional staff in the market.
Q. What is the main challenge for the firm at the moment?
A. One is that we need to develop our own talent pool as there is not a large labour market with the right skills from which we can hire. Therefore we need to hire people and then train and give them the experiences to develop into competent professionals which takes time and resources.
Another challenge would be the tremendous fee pressure in the marketplace for professional services. There is a continuing downward trend that is, to a great extent, unsustainable in a developing market. The cost of living and general cost of labour cannot increase with the cost of professional services going down. This coupled with the fact that we need to invest more in talent development just adds to the complication. Having said that though we work closely with our clients to have value driven rather than cost driven discussions and we are confident that in time we will reach a situation where fair fees for outstanding service are the norm.
Discussion about this post